Canadian Prefs

[SafetyinNumbers]

10.6% available on DC.PR.B right now. Some weird selloff has occured or see my post on the Dundee thread.

 

Could the sell off be related to the DC.PR.B being a rate reset compared to the floaters DC.PR.D? I can see the market expecting a premium on a floater if rates are going to increase. What's weird is if you look at both price charts, the D's were sold off last year around this time even though the interest rate picture was more or less the same.

 

I think the D's sold off hard last year because of the liquidity concerns that came about with the proposed extensions of the C's (now E's). But you are right that the spread between the B's and D's should narrow as we get closer to reset.

[Cardboard]

I don't think that there is any rationality to explain the DC.PR.B selloff. It is probably just one or two guys quickly liquidating into a vacuum of buyers. Maybe tax loss selling? I didn't see any similar moves in other preferreds.

 

I have been playing the game of buying floaters, then switching to fixed rate reset and vice versa all year or when the spread between the two was wide enough. For some reasons, they never move in perfect tandem.

 

On this one, the current yield is 10.6% and the reset should be at 9.65% on Sept 30, 2019. That gives you a 5 year yield average of 10.25%. I find that really high to protect you against any reasonable interest rate increase.

 

The floater is currently paying 9.4% and if you add the share appreciation on a switch to the fixed rate reset at current price in Sept 2019, you get roughly 11.7% annualized. So that should be the choice but, there are some IF's. There was even discussion that the Bank of Canada could lower short term rates.

 

So I bought "B's" into this heavy selloff, will collect a higher yield than the "D's" to offset my margin loan and will likely switch back into the "D's" once things normalize. Worst case, I am stuck with a security paying me a very high yield and hopefully that the company figures out a way to unlock value and reduce risk. They still claim over $14/share in net asset value so something should be doable by the family now back in charge full time.

 

Cardboard

[valcont]

Cardboard, SIN ,

Thanks for the color.

[Cardboard]

Other preferreds that look very interesting are AIM.PR.B and AIM.PR.C.

 

And looking at the recent stock price performance and trend and the fact that these have lagged other preferreds, I have a feeling that they are about to go En Fuego!

 

Cardboard

[rb]

Other preferreds that look very interesting are AIM.PR.B and AIM.PR.C.

 

And looking at the recent stock price performance and trend and the fact that these have lagged other preferreds, I have a feeling that they are about to go En Fuego!

 

Cardboard

Have you considered something like long the pref/short the common?

[gokou3]

Other preferreds that look very interesting are AIM.PR.B and AIM.PR.C.

 

And looking at the recent stock price performance and trend and the fact that these have lagged other preferreds, I have a feeling that they are about to go En Fuego!

 

Cardboard

 

I just bought some AIM.PR.B today.  As long as the company can renew its AC contract, even at less favourable terms, the common is worth >$0.  The VIC write-up shows quite convincingly that the contract will be renewed.  In the meantime, I collect 9%+ annual yields.

 

 

[Cardboard]

"Have you considered something like long the pref/short the common?"

 

I would not since the common is yielding about the same distribution as the preferreds and I expect both to move up as uncertainty is lifted.

 

Here it is simply a case of less risk, similar reward with the preferreds. And the borrow, I get from my margin account at prime vs a risky short. What is amazing with these things is that they are pretty illiquid yet, my broker is margining them at 65% vs 70% for a stock like BCE or RY.

 

Cardboard

[lessthaniv]

Just be careful on the margin room..those %'s can change quickly and if one is too highly leveraged it can cause problems with margin calls.

 

:)

[misterkrusty]

How to reduce withholding taxes on your Canadian dividends (like from preferred shares such as these):

 

This info applies only to those of us non-Canadians who live in countries that have tax treaties with Canada (which is almost every developed country).  If you hold your shares in a retirement account, Canada will probably not withhold any tax on your dividends (this is certainly true for IRAs in the US).  If you hold your shares in a normally taxable account, Canada should give you a reduced rate if you send in a form NR301.  For U.S. citizens, this will lower the rate from 25% to 15%.

 

Many brokers have their own NR301 form ... you fill it out, send it to your broker, and they take care of the rest.  Interactive Brokers told me that they don't collect NR301 forms, and supposedly apply the treaty rate automatically if you buy your shares via IB on a Canadian exchange.  But they don't!  My september dividends from Aimia were taxed at the full 25%.  Grrrr

 

Thus I recently sent in a NR301 directly to the Canadian Revenue Agency.  Here's a link to the form: http://www.cra-arc.gc.ca/E/pbg/tf/nr301/README.html

 

I faxed it to: 1-613-941-6905    (found here: http://www.cra-arc.gc.ca/cntct/ntrntnlnqrs-eng.html )  Or you can mail to:

Canada Revenue Agency

Post Office Box 9769, Station T

Ottawa ON  K1G 3Y4

CANADA

 

Hope this works!

 

 

[longlake95]

Transalta prefs

 

TransAlta Corporation (NYSE: TAC) announced today that its Board of Directors has approved a transaction pursuant to which all the currently outstanding first preferred shares in the capital of the Corporation are proposed to be exchanged for shares in a single new series of cumulative redeemable minimum rate reset first preferred shares, series 1, in the capital of the Corporation pursuant to a plan of arrangement. The terms of the New Preferred Shares will be substantially the same as the terms of the existing first preferred shares with the exception of an adjustment to the reset spread to 5.29%, a change to December 31, 2021 for the next reset date, and the addition of a minimum reset coupon rate of 6.5%.

 

 

 

The Corporation currently has four series of cumulative redeemable rate reset first preferred shares outstanding, being the series A shares, series C shares, series E shares and series G shares, and one series of cumulative redeemable floating rate first preferred shares outstanding, being the series B shares (collectively, the "Existing Preferred Shares"). Pursuant to the Arrangement, the outstanding Existing Preferred Shares will be exchanged for New Preferred Shares at an exchange ratio specific to each series of Existing Preferred Shares...

 

http://www.transalta.com/newsroom/news-releases/2016-12-19/transalta-corporation-announces-preferred-share-exchange

 

[longlake95]

There may be an arb opportunity, assuming they issue the new prefs @ $25.

[SafetyinNumbers]

That is true and there also may be a bump if there are some holdouts in the various classes.

 

On a broader basis though, this looks very smart from a corporate basis as it directly transfers EV from preferred to equity, all else being equal. It also makes TA easier to take over.

 

Which other preferred share issuers could follow suit?

[longlake95]

Yes, it does look smart. It's also interesting that BAM/Flatt has been buying the common, and now owns 14M shares. hmmm.

[gokou3]

I am a holder of TA.PR.D and TA.PR.E.  I can see easily why the company wants to do it but this offer is very unfair to the existing preferred shareholders.  It essentially stripped them of any potential capital gains in the old shares.  I will vote against it and think all shareholders should say no.  The company will need 2/3 approvals to put this through so they do have a decent barrier to surmount.

 

 

There was a similar saga several months ago with Dundee preferreds - there's a thread (search Dumbdee) on that.  It actually worked out well for the shareholders who pressured the company to sweeten its offer.

[RichardGibbons]

Yeah, this is a pretty terrible deal for the preferred shareholders.  I'll vote my series E shares against it.  I also expressed my displeasure to their Investor Relations folks here.

[Maple Fun]

For Transalta, the exchange will NOT succeed.

 

I am accumulating more TA.PR.D and TA.PR.E. The proposal reminds me of a recent exchange in Dundee's preferred. Their management has to sweeten the deal to make it though. We probably will see a at lease 25%+ capital gain with in 3-6 months here for D and E.

 

This would be my best idea for year 2017

 

Where are you, hedge funds and activist investors?

[finetrader]

TransAlta Announces Adjustment to Series A Offer Premium

 

http://www.marketwired.com/press-release/transalta-corporation-files-management-information-circular-relating-proposed-preferred-tsx-ta-2188681.htm

 

I bought Series A ( TA.PR.D)  after reading comments that made lots of sense on this tread.

 

Now the question is, will it be enough to get it approved?

[finetrader]

http://business.financialpost.com/news/fp-street/transalta-cancels-a-planned-preferred-share-swap-because-of-investor-push-back

 

Closed position. For a small profit

[gokou3]

This document from Scotia McLeod is a very good resource too.  It seems to be updated every year.

 

http://beltramewealthmanagement.com/wp-content/uploads/2015/01/2015-Guide-to-Preferred-Shares.pdf

 

The 2016 edition is now available:

http://robgrayassetmanagement.com/content/uploads/prefGuide2016.pdf

 

Anyone has gotten a hold of the 2017 guide to preferred shares?  I think Scotia has done a great job of assembling a manual of Canadian preferred shares.

[longlake95]

Card, you still own DC b prefs? I see many of the prefs have been weak the last couple of months DC b included. TA-j also has been weak. U still like Dundee prefs?

 

LL

[SafetyinNumbers]

Card, you still own DC b prefs? I see many of the prefs have been weak the last couple of months DC b included. TA-j also has been weak. U still like Dundee prefs?

 

LL

 

As we await Card's answer. I suggest buying the DC.PR.D's over the B's as they are interconvertible in 2.5 years. While, the B's look more attractive on a current yield basis at a 9.9% yield vs the D's at 9.3%, all else being equal the interconversion feature adds about 7%/year to your return.

[SafetyinNumbers]

This document from Scotia McLeod is a very good resource too.  It seems to be updated every year.

 

http://beltramewealthmanagement.com/wp-content/uploads/2015/01/2015-Guide-to-Preferred-Shares.pdf

 

The 2016 edition is now available:

http://robgrayassetmanagement.com/content/uploads/prefGuide2016.pdf

 

http://newtongroupwealth.com/content/uploads/PREFERRED-GUIDE-2017.pdf

 

Anyone has gotten a hold of the 2017 guide to preferred shares?  I think Scotia has done a great job of assembling a manual of Canadian preferred shares.

[longlake95]

Thanks Safety, the DC D's reset at 4.10% over the 90 day Tbill right? But the B'S reset 4.10% over the 5 yr gov't, so we'd likely get better exposure to rising rates owning the B's. But who knows what rates will do?

[Cardboard]

I now only own the D's for the reason mentioned by Safety.

 

Cardboard

[gokou3]

http://newtongroupwealth.com/content/uploads/PREFERRED-GUIDE-2017.pdf

 

Anyone has gotten a hold of the 2017 guide to preferred shares?  I think Scotia has done a great job of assembling a manual of Canadian preferred shares.

 

Thanks, SafetyinNumbers.  Have been looking for it for a few months.